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Banks expect benefits from £2.5bn compliance costs

Tash Shifrin

IT costs account for more than a third of the estimated £2.5bn bill faced by UK banks seeking to achieve compliance with the Basel 2 accord, management consultancy Accenture has warned.

The firm surveyed 20 banks from the UK and Ireland, alongside another 43 from Europe and the US, about their preparations for implementing Basel 2. The accord sets out how much capital banks must set aside to cover potential losses and introduces new risk monitoring standards.

Banks across the world are reporting rising costs as they work towards compliance, with IT systems and interfaces accounting for 36 per cent of estimated total costs, compared with 52 per cent allocated to credit risk and 12 per cent for operational risk.

Paul Cartwright, Accenture’s global head of risk and regulation, said total costs incurred reported by the 20 UK and Ireland banks alone were “over £750m, with one large bank by itself spending over €200m (£135m)”.

He added: “This means that across the banking sector in the UK complying with Basel will easily have cost banks at least £2.5bn.”

The banks believe the investment can be made to pay with economies from better risk analysis and eliminating duplication between their risk and finance functions.

Asked to identify potential benefits from Basel 2, 65 per cent of UK and Irish banks thought regulatory capital could be reduced, 75 per cent believed enhanced risk-based pricing was a potential benefit and 95 per cent saw benefits from the increased overlap between risk and finance functions, which could be achieved through increased savings, greater operational efficiency or better governance.


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